The Immigrant Kid’s Guide to Capitalism

I just sold my third company. It took a while to get here. I think I made every mistake in the book on the way. My parents, refugees from the Soviet Union taught me the importance of math and science, working hard, being skeptical (probably to a fault), but couldn’t pass on any lessons on finance or business. I had to learn these on my own.

I think are lot immigrant and first generation kids were in the same boat as I was. I want to give them a head start. Here’s everything I wish I knew about capitalism when I was 18.

Most kids grow up with communism at home and capitalism on the playground.

At home, Mommy and Daddy are the fair allocators of resources to all the siblings. For example, on the way to school Mommy might pack you and your siblings and equally good turkey sandwich for lunch at school. Mommy loves you a lot so the sandwich is made of the highest quality ingredients - organic turkey, and lettuce and Russian rye bread.

At school, you pass by the cafeteria selling Chick-Fil-A and Dominos pizza and you realize you’d much rather have one of those than your healthy turkey sandwich. Alas, these coveted good cannot be purchased in units of turkey sandwich. You need a more liquid medium, liked the U.S. Dollar. So, on a lucky day, you sell your turkey sandwich for $5 and buy a juicy Chik-Fil-A sandwich and have enough left over for a coke. Those were good days.

If you look at history, the system of the playground - capitalism - has thrived. Countries with liberal democracies and capitalism are the wealthiest on the planet. Their citizens enjoy the longest lives, highest GDP per capita, and the highest literacy rates. Interestingly, they are not always the happiest because wealth doesn’t lead to happiness, especially when it is not earned. But that’s a topic for a different article.

In contrast, the citizens of Communist countries live terrible, sad, and impoverished lives in ways Americans cannot comprehend. Let me color this in a bit for you. My parents, refugees from the Soviet Union, had never seen more than one type of meat in a grocery store until they came to the United States. When my Mother took my brother to the dentist here for the first time, she demanded that anesthesia not be used because too many people in the USSR died from its misadministration. Of my four grandparents, two died from botched surgeries that would be considered routine in the United States. Everyone is short because there wasn’t much food and one of my relatives walks with a limp because he grew up during a famine and the bones in his legs never properly developed.

This is but a taste of the tale of those who lived. Over the course of its history, the regime my parents lived under murdered 20 million of its own population. Is eastern Communist neighbor China, murdered 50 million of its own.

The road to communism starts with runaway capitalism. Improperly regulated, capitalism can lead to extreme wealth inequality. Leftist political leaders seize the opportunity to rally the proletariat toward communism. An equal share for everyone. To each as he deserves. The billionaires have all this money; what about us. They rally the people toward revolution. The billionaires are murdered, and their wealth stolen by the leftist leaders.

These leftist leaders are not the father and mother of the people.They are politicians and keep the money for themselves. Would you believe it!

When the people are no better off, their leaders find some other group to blame, and kill them and steal their wealth. Until there is no one left to blame.

For the latter half of the 20th century, it was obvious to most Americans that capitalism was the superior system. But were are once again in a period of high wealth inequality, similar to that of the gilded age in the late 19th century, and the youth are hearing the siren song of capitalism. (Ironically, the high costs they face in healthcare, education and housing are all a result of government intervention in those markets)

But though Communism may sound like the warm and fair embrace of Mommy and Daddy again, it leads to nothing but poverty and death.

Capitalism is the only nation-scale system that has lead to prosperity.

Almost all of the Russian Jewish immigrants that came over to the United States with my parents were scientists or mathematicians. These were the only fields of in the USSR where the state hadn’t perverted the truth. To be a Marxist historian meant becoming an expert in a fictional history invented by the communist party. To be a lawyer meant pretending that the concept of justice existed in a totalitarian state.

In a country of lies, math and science were the only refuge of truth. Even in the U.S, where we are free to read competing version of history, the humanities are not pure. They are subject to the fads of the day.

So math is truth. And if you have a taste for math, you have a taste for truth. My bar for “taste for math” is incredibly low. You do not need to be mathematician. You do not even need to know calculus (though it’s a shame not to know it). You need to be able to answer some of the following basic questions. A surprising number of people can’t.

• If I make X per day, how much will a make a year? How much will be left after tax? After my expenses? Is the remaining amount positive or negative?

• How much money do I need to earn per year to support a family with one child? With two? With three?

• If I put a dollar in a savings account making 3% a year, how long will it take to double? How does this compare to putting the money in the stock market where it will grow 7% a year?

• If I run a coffee shop and sell someone a coffee for $5, how much is left over after I pay for the beans and the barista? How much is left when I pay the rent? How much is left when I pay taxes?

• Should I buy a gallon of milk at the grocery store for $5 or a parcel of three gallons from Costco for $12?

• If inflation is 3% a year, how much is value does cash in a savings account yielding 2% a year decrease every year?

This is all basic addition, subtraction, division, and multiplication and something called the rule of 72 (a quantity growing at X% a year will double in 72/X). That’s it.

I have never met anybody rich who wasn’t comfortable doing this type of basic math.

Over the last 25 years, the American stock market has returned on average 10% a year. If this trend continues, a dollar invested in the market will double in seven years.

It’ll double again in another seven years. So over 14 years, a dollar turns into $4. Over 21, into $8. Over 28, into $16. 28 years is not that many in the span of a human life. Over 49 years, a dollar turns into $128.

Just think about that for a second. If you put $100,000 in the American stock market at the age of 18 and waiting until you were 65, it would, roughly speaking, turn into $12.8M dollars. At 72, it’ll be $25.6M.

Think about that the next time you decide to buy a nice watch or a fresh pair of sneakers. Every dollar you spend today is $4 in 14 years and $128 in 49 years.

This is the power of compounding, of geometric growth year over year.

So far, we’ve discussed investments of capital. But there’s a far more important asset you have to invest - your time.

See next section.

I wrote another article on how the best capitalists are like surfers. They see a wave coming in, like the rise of minicomputers, internet, bitcoin, or AI and get on early. These waves are tsunamis, but unlike real tsunamis which destroy everything in their path including the surfers, these lift all surfers, even the most terrible ones.

These waves can be reduced down to a growth rate, a terminal size, and a time period. Consider the personal computing tsunami. From 1980 to 2020, the number of people with PC’s went from basically zero to 1.4B. In the 80’s this number was growing at 50% YoY. In the 2010, it grew by 1.8% per year. Similar tsunamis are the number of people with internet, bitcoin wallets, and using AI.

You can get rich without getting on a tsunami. A friend of mine runs a software business in a box for med-spa operators. The number of med spa operators is increasing at 20% a year. The virtue of a smaller growing market like this is that not everyone knows about it.

I think that as the internet increases the rate that information spreads to all of humanity and decrees the friction to start a business, the period of these waves decreases.

So it’s important to learn to recognize the wave as it’s coming. Once you hear about it from someone else, it might be over. Special note here on advice from parents. The wave that your parents rode or saw their rich friends ride has almost certainly come in to shore. Being a doctor ain’t what it used to be.

Think about what the future will look like in 20 years, what wave will get there and paddle out.

The first private company to get big was the Dutch East India Company (VOC). It put investor capital to work extracting spices from Indonesia and in its heyday was more powerful than the European nation states it competed with.

To attract capital, the VOC paid dividends, a share of its annual profits. So this is a historical example of how equity (ownership) in a business returned a profit to investors. Equity works roughly the same way in the modern stock market except that many companies invest their profits into growth instead of paying it out as a dividend, which usually results in the company becoming more valuable.

A different form of financial instrument is debt. There is a saying that lending is the second oldest profession. Ancient Babylonian cuneiform records show loans, in grain, made to farmers in return for a portion of future harvests.

Debt is commonplace today. In fact most people buy most things with a credit card, which is a loan you ideally pay off monthly. You have a car loan. You have a loan on your house. Companies take out debt to fund projects.

Another way of thinking about debt is money from the future. You get money from the future today and the price is interest. So if you want to buy a home for a million dollars, which you believe you’ll have in the next 30 years but not today, you put down 250K, get a loan for 750K, and pay 6% interest a year for the next 30 years until it’s repaid (if you do the math, you’ll be paying a lot more than 750k over 30 years).

There are all kinds of equity. Public equity in public companies. Private equity in private companies. In real estate. People build careers specializing in subcategories of the above. And there are all kinds of debt.

When I was 25, one of my roommates was a legal clerk for a U.S. district court justice. I was surprised that he was writing the Justice’s opinions for him. He would draft what he through the justice wanted, the justice would edit, and that would be that. Eventually he learned to be the voice of the justice.

This pattern generalizes. In the world of investing, people in their 20’s do all their work, and get it signed off by people in their 30’s and 40’s who already have a reputation. The 20 year olds who do great work gain the reputation, get older and hire 20 year old to replace them.

This is in large part due to the fact that 20 years olds have more time and energy than any other demographic. I’m writing this as a 35 year old with a seven month old child and I have significantly less time and energy to work than I did when I was 25. And when I have two more children, god willing, I will likely be mind-boggled by the amount of free time I have today.

Point is: make yourself in your 20’s. Pick your wave and work 80 hours a week to stay on it so that when you’re in your 30’s you can let it ride. Stay away from the post-modern nihilistic bullshit about finding yourself in your 20’s. You will wake up one day at 30 and the world will have passed you by.

People who come from abundance act like it, as do people who come from not much. There are two levels to manners. The first is the easy stuff: how to hold a fork and knife, hold the door open, use your napkin. All things that a hypothetical etiquette grader could measure.

Then there’s the more fuzzy wuzzy stuff. One of the things I see immigrant kids do all the time is say thank you repeatedly to the same person for the same thing. This signals subservience. There are all sorts of things like this and one of my investors - Sam Lessin - wrote a comic book about them. Worth checking out.

My step father in law has a saying, “if you’re explaining, you’re losing.” This is roughly true. The Ivy League teaches students to impress by speaking and writing at length, using all sorts of fancy vocabulary and tools of rhetoric.

In the real world, people who write and speak at length either don’t know what they want to say, have nothing to say, or are trying to cover something up.

You’ll also find that as the people you talk to become wealthier and more powerful, their attention span decreases, usually exponentially. You will lose them after 20 seconds.

Speak slowly, clearly, like every word out of your mouth costs you $100.

When I was a kid, I played all sorts of strategy computer games. Civilization IV was turn based. You took a turn, the computer took a turn. StarCraft was real time.

Negotiations with humans are turn based.

There are three components to each turn in a human negotiation

1. Whether there exists a response

2. The time taken to respond

3. The content of the response

If there is no response, there is no interest. If there is a response there is interest and the time taken to respond is correlated to the magnitude of interest. The content of the response is usually tertiary to the first two.

This applies to email conversations as well as verbal. Do not speak twice in either setting. Say your piece and wait for a response. This is especially true when presenting pricing or terms of a deal. Look them in the eye, state your terms, and STFU. There will be silence. The silence will continue. It will be painful and long. It will continue. Oh my god how long could it take.

Your counterparty is using the silence to test you. I can’t imagine how much potential ACV was lost because socially awkward nerds couldn’t bear the silence and walked back the price without the other side saying a word.

Also once you make the sale, STFU. “Great. Docs coming your way in an hour.”

I had the good fortune of meeting a man who was a U.S. Senator, a Governor, a SEAL, and a Medal of Honor recipient. A real American hero. He was involved in legislation that allowed my family to come here as refugees from the Soviet. He’s a hoss and a hoot.

I asked him, “what’s the secret.” He told me, “You got to figure out where you are. Where you want to go. And what you need to get there.”

If there is one thing you take from this article, take this lesson. People mess it up all the time firstly by not figuring out where to go. They let others tell them where to go or they don’t go anywhere or they go where they think others want them to go. Then they don’t adequately assess where they are. Then also don’t figure out what it needs to get there. This is a common failing. They don’t raise enough money, or hit the right checkpoints, or hire the right people. And they don’t add margin of safety. It usually takes 2x or 3x what you think it’ll take to get there.

The most important thing you’ll need on the journey is will. If history is a tapestry, it is woven by men and women of will. Alexander the Great conquered the ancient world and taught it the wisdom of the Ancient Greeks because he wanted to. The Catholic Church won over the Roman Empire because St. Ambrose St. Jerome and St. Augustine made it so. Winston Churchill prevented England from surrendering to Hitler despite all odds because he refused to surrender. His Cambridge and Oxford educated peers thought surrender their only choice.

History is full of dogged individuals who impose their will on the world to despite the outraged protestations of the well credentialed and “intelligent” defenders of the status quo. Be the former.

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So ends my first version of the immigrant kids guide to capitalism. Everything I wish I knew about business when I was 15. I hope you find it helpful.